Summary
In Allen v. Carver Federal Savings Loan Ass'n, 123 Misc.2d 704, 477 N.Y.S.2d 537, 538 (Sup. 1984), plaintiff maintained a savings account at the defendant bank.
Summary of this case from Southside National Bank v. HeppOpinion
January 31, 1984
Appeal from the Civil Court of the City of New York, New York County, Shirley Fingerhood, J.
Holmes, Meehan Cozier ( Gilbert A. Holmes of counsel), for appellant.
Order entered May 14, 1982 reversed, with $10 costs, complaint dismissed, and judgment directed for defendant as prayed for in the counterclaim.
The facts are simple enough. Plaintiff maintained a savings account at the defendant bank. A check in the sum of $1,900.75 drawn on a Connecticut bank, payable to one Vera Harris, was indorsed by the payee and given to plaintiff, who in turn indorsed the instrument and deposited it in her account on September 7, 1978. According to plaintiff's testimony, she was at the bank on various occasions after that date inquiring about the check and was eventually told on September 18 by a teller that the check had "cleared". Plaintiff then withdrew the sum of $1,530 from the account, which she apparently used to pay for certain obligations of Harris, the payee on the check. The check was returned to the defendant uncollected, and defendant charged back plaintiff's account in the amount then available — to wit, $1,015.19.
Plaintiff sued in negligence and conversion for $1,900.75, the face amount of the check; the bank counterclaimed for $885.56, representing the difference between the amount obtained by plaintiff on the check and the amount recovered on the charge back. Trial Term, finding that plaintiff had "relied on the erroneous statement of defendant negligently made to her detriment", gave judgment in her favor in the sum of $744.44, the amount the court calculated plaintiff had lost "because of defendant bank's error". The counterclaim was dismissed.
We start with the accepted propositions under the Uniform Commercial Code that unless a contrary intent appears, the settlement given by a collecting bank is provisional before the settlement is final and the collecting bank is an agent of the owner during the collection process (Uniform Commercial Code, § 4-201, subd [1]). The statute "operates to keep the risk of loss upon the owner of the item rather than the bank and gives to the depositary bank a right to reimbursement superior to the owner's rights to the proceeds" ( Long Is. Nat. Bank v Zawada, 34 A.D.2d 1016, 1017). In those cases where the bank making the provisional settlement does not itself receive final payment, the provisional settlement may be reversed and the right of charge back exercised, if the bank acts timely (Uniform Commercial Code, § 4-212, subd [1]).
No claim is made that defendant did not exercise its right "by its midnight deadline or within a longer reasonable time after it learn[ed] the facts" (Uniform Commercial Code, § 4-212, subd [1]).
The right to charge back is not affected by the bank's failure to exercise ordinary care with respect to the item, but the bank will remain liable for its negligence in handling the item (Uniform Commercial Code, § 4-212, subd [4], par [b]; § 4-103). We are dubious that the mere statement of a depositor that an unidentified teller told her (mistakenly) that a check had "cleared", when in fact it had not, constitutes that quantum of proof of negligence which will enable a customer to prevail against the bank under the circumstances disclosed here. A bank may credit a customer's account with the amount of an item before final settlement and, in response to a specific request or as a matter of general procedure, may permit the customer to withdraw against it. That does not mean that the bank should be left without remedy against its customer if the bank does not ultimately receive final payment (see Isaacs v Chartered New England Corp., 378 F. Supp. 370, 374-375). The risk of loss continued in the plaintiff, not the agent bank, until settlement became final, and plaintiff cannot shift the risk of loss to the bank by relying upon the statement of the teller or the fact that she was permitted to withdraw funds from her account.
The error occurred here because the teller presumably treated the item in question as a domestic check instead of a foreign check; checks in the latter category were, by bank policy, to be restricted against a customer's account for 30 days. If this was negligence, it was not negligence which resulted in the nonpayment of the item. Under the Code, "the measure of damages for failure to exercise ordinary care in handling an item is the amount of the item reduced by an amount which could not have been realized by the use of ordinary care" (Uniform Commercial Code, § 4-103, subd [5]). Since the check could not have been and was not in fact collected, quite apart from defendant's alleged negligent representation to the plaintiff that it had "cleared", plaintiff's recovery would, pursuant to the Code rule, be reduced by the amount which would have been in any event uncollectible — which is the entire amount of the item in this case. Plaintiff did not sustain cognizable damages because the check she deposited was never paid, yet she was able to obtain and use the proceeds thereof either for her own benefit or the benefit of another of her choosing. No bad faith on the part of the defendant has been alleged or proven. In consequence, plaintiff's remedy lies against the indorser and/or drawer of the check.
The primary issue in this appeal is whether or not the bank exercised ordinary care with respect to the check.
A depositor warrants to any bank who takes an item, in good faith, that upon dishonor and any necessary notice of dishonor and protest he will take up the item (Uniform Commercial Code, § 4-207, subd [2]). Superimposed upon this agreement, however, are the provisions of section 4-212 (subd [4], par [b]) of the Uniform Commercial Code which states that:
"(4) The right to charge-back is not affected by * * *
"(b) failure by any bank to exercise ordinary care with respect to the item but any bank so failing remains liable"; and subdivision (1) of section 4-103 which states that: "The effect of the provisions of this Article may be varied by agreement except that no agreement can disclaim a bank's responsibility for its own lack of good faith or failure to exercise ordinary care or can limit the measure of damages for such lack or failure".
Under section 4-103 the term "ordinary care" is not defined and is used with its normal tort meaning and not in any special sense relating to bank collections. (See Uniform Commercial Code, § 4-103, Comment 4.)
The majority "are dubious that the mere statement of a depositor that an unidentified teller told her (mistakenly) that a check had 'cleared', when in fact it had not, constitutes * * * proof of negligence". I might be inclined to agree if that was the only evidence of negligence. It is not. The bank manager testified that a teller, albeit unidentified, told the depositor that the check had cleared. In my estimation the bank concedes that they failed to exercise ordinary care. I might note that the bank also concedes through the branch manager that the depositor was told in error that the check in question would clear in 10 to 15 days when under their system it would, in fact, take 30 days. Relying in good faith upon these representations, the depositor withdrew funds from her account and satisfied various obligations of the payee. The important factor in the last transaction is that the transfer was made in "good faith", which is defined as "honesty in fact in the conduct or transaction concerned" (Uniform Commercial Code, § 1-201, subd [19]). We are not concerned here with a depositor who is credited with funds to which she is not entitled. In the latter hypothetical, the depositor could not transfer or spend those funds in "good faith".
The record is crystal clear. The cause of the depositor's transfer was the concededly inaccurate information supplied to her by the bank. The bank failed to exercise ordinary care. The effect of that failure should not be visited upon the depositor.
In addition, I think the majority misinterprets subdivision (5) of section 4-103 of the Uniform Commercial Code in determining how damages are to be assessed in this case. If the bank had exercised ordinary care there would have been no damage. The entire loss could have been avoided by the exercise of ordinary care.
Finally, under the circumstances of this case, I do not believe that it is incumbent on the plaintiff to allege or prove that the defendant acted in bad faith. The fact that the plaintiff acted in good faith is controlling in the absence of proof to the contrary.
Accordingly, I would affirm the judgment appealed from in its entirety.
SULLIVAN, J.P., and PARNESS, J., concur; SANDIFER, J., dissents in a separate memorandum.